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American Airlines and US Airways are one step closer to a potential merger.
The companies said Friday they signed legal documents allowing them to confidentially exchange information. But a deal is still far from reality.
“It does not mean we are merging — it simply means we have agreed to work together to discuss and analyze a potential merger,” US Airways CEO Doug Parker said in a letter to employees Friday.
Such a merger would put the combined airline on par with the world’s largest — United Continental Holdings Inc. — and the slightly smaller Delta Air Lines. Its position as the No. 1 or No. 2 airline in the world, based on how many miles its passengers fly, would depend on how many routes anti-trust regulators force the combined airline to abandon.
Parker has been pushing for a merger since American’s parent company, AMR Corp., entered Chapter 11 bankruptcy protection on Nov. 29, 2011. American Airlines CEO Tom Horton has said his airline is weighing several options, including remaining independent or merging with one of several airlines, including US Airways Group Inc.
It could be months, if not years, before passengers see any impact from a merger. AMR still has to work itself through the bankruptcy process, government regulators would have to sign off on any deal and then the process of actually combining operations could take years.
US Airways previously said the combined airline would keep the American name and American’s participation in the OneWorld alliance, which includes British Airways, Cathay Pacific, Qantas and eight other carriers. If past mergers are any indication, frequent flier miles would ultimately be merged into American’s AAdvantage program.
In the past decade, the airline industry has seen the combinations of Delta with Northwest, United with Continental and Southwest Airlines Co. with AirTran. Further consolidation is likely to mean higher airfares for passengers. The price of a domestic round-trip flight has climbed nearly 20 percent, when adjusted for inflation, over the last 10 year according to the Bureau of Transportation Statistics.
American currently serves about 250 cities in more than 40 countries with 3,400 daily flights. US Airways has 200 destinations in 28 countries with 3,200 daily flights. There is some overlap. But by joining forces the combined airline becomes more attractive to companies seeking to fly employees around the globe with few connections.
US Airways passengers would gain access to American’s international destinations, particularly London and Latin America. American’s passengers would be able to better connect to smaller U.S. cities that US Airways serves.
The combined carrier would have considerable presence in New York, Philadelphia, Washington, Charlotte, N.C., Miami, Chicago, Dallas, Phoenix and Los Angeles. It’s unclear how many of those cities will survive the merger. In past mergers, airline executives have promised not to close any hubs but have gone ahead and dramatically reduced service in once-key cities.
US Airways has said that it would move its headquarters from Tempe, Ariz. to American’s in Fort Worth, Texas.
Nothing in the non-disclosure agreement prevents American from discussing a merger with another airline. It just can’t disclose details of its US Airways merger talks with a third party. In fact, at least one other airline has signed a confidentiality agreement with American, the company said in a note to American Airlines managers Friday.
American is cutting its expenses in bankruptcy court but also said in the note that it is “also now looking at other strategic options that could make the new American even stronger.”
The CEOs of JetBlue Airways Corp. and Alaska Air Group Inc. have both publically said they are not interested in a merger with American. JetBlue spokeswoman Alison Croyle said Friday that the airline has not signed a non-disclosure agreement with American.
Virgin America and Frontier Airlines, part of Republic Airways Holdings Inc., have also been discussed as merger partners but representatives from the airlines have declined to comment, saying it was just speculation.
International Airlines Group, which owns British Airways and Iberia, recently said it is investigating taking an ownership stake in American if it adds value to the airlines’ existing partnership. Foreign investors are prohibited from owning more than 25 percent of a U.S. airline.
Regardless, US Airways is the most-likely partner for a merger.
“I don’t think there’s really any other realistic prospect out there for American,” said Savanthi Syth, an airlines analyst with Raymond James.
The airlines warned in a joint press release that they will not “provide any further announcements regarding the status of any such discussions unless” a merger is ready to be announced or if the talks fall apart.
US Airways’ stock price was up nearly 5 percent in late morning trading.